Employment Law

California Appellate Court Affirms Nonsolicitation Provision Is Unlawful

Why it matters

Affirming the judgment of a trial court, a panel of the California Court of Appeal, Fourth Appellate District agreed that a travel nurse provider ran afoul of state law with the use of a confidentiality and nondisclosure agreement (CNDA) that included a provision preventing individual defendants from soliciting any employees to leave their service for at least a one-year period. AMN Healthcare sued Aya Healthcare Services and four former employees asserting breach of contract and misappropriation of confidential information after the employees left AMN and went to work for Aya. The defendants filed a cross-complaint for declaratory relief and unfair business competition, calling the CNDA an improper restraint on their ability to engage in their profession in violation of Section 16600 of the state’s Business and Professions Code. Granting summary judgment in favor of the defendants, the trial court enjoined AMN from enforcing the nonsolicitation of employee provision in the CNDA regarding any former California workers. The appellate panel affirmed, emphasizing the state’s “strong public policy of protecting the right of its citizens to pursue any lawful employment and enterprise of their choice.”

Detailed discussion

AMN Healthcare and Aya Healthcare Services are competitors in the business of providing temporary healthcare professionals, particularly “travel nurses,” to medical facilities around the country. As a condition of employment with AMN, employees were required to sign a confidentiality and nondisclosure agreement (CNDA).

Section 3.2 of the CNDA provided: “Employee covenants and agrees that during Employee’s employment with the Company and for a period of [one year or] eighteen months after the termination of the employment relationship with the Company, Employee shall not directly or indirectly solicit or induce, or cause others to solicit or induce, any employee of the Company or any Company Affiliate to leave the service of the Company or such Company Affiliate.”

AMN sued four former employees and Aya. Each of the individual defendants, hired between October 2012 and May 2014, worked in the staffing department to recruit and place travel nurses. Each also signed the CNDA and ultimately went to work for Aya. Because AMN’s travel nurses were employees of AMN, the plaintiff alleged that Section 3.2 of the CNDA applied to prevent for a period of at least one year a former AMN employee from recruiting a travel nurse who was on temporary assignment.

In addition to the breach of contract allegations, AMN claimed the individual defendants misappropriated trade secrets as set forth in the Uniform Trade Secrets Act by using confidential and proprietary information.

The defendants responded with a counterclaim for declaratory relief and unfair business competition. Ruling on cross-motions for summary judgment, the trial court judge sided with the defendants. The nonsolicitation provision was an improper restraint on the individual defendants’ ability to engage in their profession in violation of Business and Professions Code Section 16600, the court held, enjoining AMN from enforcing the provision as to any California AMN employees.

AMN appealed. The nonsolicitation provision was valid and enforceable, the plaintiff argued, as it merely prohibited individual defendants from soliciting “current [AMN] employees.”

But the California appellate panel disagreed, affirming summary judgment in favor of the defendants.

Section 16600 provides: “Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.” This absolute bar on contractual restrictions expresses California’s “strong public policy of protecting the right of its citizens to pursue any lawful employment and enterprise of their choice,” the court said.

Applying the statute, the panel independently concluded that the nonsolicitation of employee provision in the CNDA is void under Section 16600.

“Indeed, the broadly worded provision prevents individual defendants, for a period of at least one year after termination of employment with AMN, from either ‘directly or indirectly’ soliciting or recruiting, or causing others to solicit or induce, any employee of AMN,” the panel wrote. “This provision clearly restrained individual defendants from practicing with Aya their chosen profession—recruiting travel nurses on 13-week assignments with AMN.”

A one-year post-termination restriction preventing a former AMN recruiter from contacting and recruiting a travel nurse on a 13-week assignment with AMN at a minimum equates to a period of four such assignments for a given nurse, the court noted.

“[T]he individual defendants were in the business of recruiting and placing on a temporary basis medical professionals, primarily nurses, in medical facilities throughout the country,” the court said. “If enforced, section 3.2 thus restrained individual defendants from engaging in their chosen profession, even in a ‘narrow’ manner or a ‘limited’ way. We thus independently conclude section 3.2 of the CNDA is void under section 16600.”

In light of this conclusion, the plaintiff’s other contract-based claims (such as breach of loyalty and intentional and negligent interference with prospective economic advantage) failed as well, the panel found.

As for the misappropriation of trade secret claims, the court determined that the information at issue was not entitled to legal protection. Of the travel nurses listed in AMN’s complaint as having been solicited by the individual defendants and Aya, two applied with Aya almost a full year before one of the individual defendants attempted to recruit them; a third applied with Aya three years before her solicitation.

“The undisputed evidence shows that the identity and contact information of travel nurses that AMN claims to be ‘secret’ for purposes of its trade secret cause of action were already known to Aya before any of [the] individual defendants left AMN and went to work for Aya,” the panel wrote.

Many travel nurses belong to a public social media group called the “Gypsy Nurse Group,” the court added, comprised of more than 30,000 travel nurses/members, reinforcing the conclusion that their identities and contact information are not “secret.”

Further, an email one of the individual defendants forwarded to an Aya recruiter before leaving AMN’s employ was not a protectable trade secret because it was “very general,” the court found.

“We conclude as a matter of law that the information in this e-mail is not a protectable trade secret, as it merely addressed information about Aya and some of the terms it used in competing with AMN to recruit travel nurses,” the court said. Aya did not make any changes to its hiring practices as a result of the email and did not believe the information in the message held any value, the panel said, other than being “amus[ing].”

The appellate panel affirmed summary judgment in favor of the defendants as well as the injunction against AMN from attempting to enforce Section 3.2 against the individual defendants and other California AMN employees.

To read the opinion in AMN Healthcare, Inc. v. Aya Healthcare Services, Inc., click here.

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California Employers Face Busy 2019 With Host of New Laws

Why it matters

With the dozens of new laws enacted by the California legislature and signed into law by outgoing governor Jerry Brown, employers in the Golden State will have little time to rest over the holidays as they prepare for new requirements. The new laws include an expansion on sexual harassment training requirements, a prohibition on nondisclosure agreements related to claims of sexual harassment, changes to the existing rules for lactation accommodations, and the mandatory inclusion of women on corporate boards of directors. Although it seems hard to believe, Gov. Brown did veto some of the bills passed by lawmakers, including a potential game-changer that would have banned arbitration for claims arising under the Labor Code and the Fair Employment and Housing Act (FEHA). California employers need to get up to speed on the changes because the bulk of the new laws take effect in coming months.

Detailed discussion

Below are some of the most important and widely applicable new California laws.

Prohibition of Confidentiality Provision in Certain Settlement Agreements

  • Senate Bill 820. Covering both private and public employers, the Stand Together Against Non-Disclosures (STAND) Act prohibits the inclusion of a provision in a settlement agreement that prevents the disclosure of factual information relating to claims of sexual assault, harassment, discrimination or related retaliation in the workplace. Any such provision entered into on or after January 1, 2019, is void as a matter of law and against public policy. The law does carve out an exception for a provision that shields the identity of the claimant and all facts that could lead to the discovery of his or her identity, as long as the anonymity is requested by the claimant and a government agency or public official is not a party to the agreement.

Waiving a Party’s Right to Testify in a Criminal Proceeding is Prohibited

  • Assembly Bill 3109. Pursuant to the new law, any contract or settlement agreement entered into on or after January 1, 2019, that waives a party’s right to testify in a legal proceeding regarding criminal conduct or sexual harassment on the part of the other contracting party, or the other party’s agents or employees, is void and unenforceable. The law applies to testimony whether required or requested by court order, subpoena, or administrative or legislative request.

Most California Employers Will Be Required to Provide Sexual Harassment Training

  • Senate Bill 1343. This law requires an employer who employs five or more employees—including temporary or seasonal workers—to provide at least two hours of sexual harassment training to all supervisory employees and at least one hour of sexual harassment training to all nonsupervisory employees by January 1, 2020, and once every two years thereafter. The California Department of Fair Employment and Housing was tasked with making available one-hour and two-hour online training courses that employers could use.

California Civil Code Amended to Expand Employment Relationships Subject to Sexual Harassment Claims

  • Senate Bill 224. An amendment to the Civil Code, the law adds new types of employment relationships that are subject to a claim for sexual harassment where one party holds him or herself out as being able to help another establish a business or professional relationship either directly or with a third party. Eliminating the element that the plaintiff must prove there was an inability to easily terminate the relationship, the changes added an investor, elected official, lobbyist, director and producer among the listed persons who may be liable.

Employers Can No Longer Reward Employee Release of FEHA Claims

  • Senate Bill 1300. SB 1300 established that it is an unlawful practice for an employer to require an employee to release a FEHA claim in exchange for a bonus, raise or continued employment. The law also expanded liability for employers beyond just sexual harassment to encompass any kind of unlawful harassment by nonemployees where the employer knew or should have known of the harassment and failed to take appropriate remedial action. Lawmakers included several statements of intent that will make summary judgment an uphill battle for employers, such as that hostile work environment cases are “rarely” appropriate for disposition on summary judgment and that a single incident of harassing conduct can be sufficient to create a triable issue of fact regarding a hostile work environment claim.

Women to Be Required on Corporate Boards of Directors

  • Senate Bill 826. By the end of 2019, publicly held domestic or foreign corporations with principal executive offices in California must have a minimum of one female director on the board. A corporation may increase its number of directors to comply with this mandate. Additional requirements for the inclusion of women on corporate boards of directors are set for the end of 2021, when a minimum of three female directors must be present on boards with six or more directors; two female directors must have a seat if the board has five directors; and if the board has four or fewer directors, one female director is sufficient to satisfy the law.

Amendments to Existing Lactation Accommodations

  • Senate Bill 1976. SB 1976 requires employers to make “reasonable efforts” to provide a room “other than a bathroom” to accommodate employees expressing breast milk. While the law encourages employers to make the location permanent, it permits the use of a temporary space if the employer can’t find a permanent solution due to operational, financial or space limitations. A limited exception was included for employers who can establish the law creates an undue hardship taking into account the size, nature or structure of the employer’s business.

Expansion of Paid Family Leave

  • Senate Bill 1123. An effort to broaden paid family leave benefits for employees who take leaves of absences for specified purposes and receive partial wage replacement, this amendment adds new reasons for leave: being called to active duty or a spouse, domestic partner, parent or child being called to active duty. SB 1123 takes effect beginning January 1, 2021.

Narrowing Allowance of Criminal History Inquiries

  • Senate Bill 1412. Under prior law, employers were permitted to inquire about an applicant’s or employee’s criminal history where federal or state law required such an inquiry. SB 1412 narrows this exception, allowing employers to delve into criminal history only when an employer is required by law to ask about a “particular conviction” or in a situation where an employer is prohibited by law from hiring someone with a “particular conviction.” The law defines “particular conviction” as “a conviction for specific criminal conduct or a category of criminal offenses prescribed by any federal law, federal regulation or state law that contains requirements, exclusions, or both, expressly based on that specific criminal conduct or category of criminal offenses.”

Clarification of the Fair Pay Act

  • Assembly Bill 2282. In 2017, the legislature enacted the Fair Pay Act, which prohibited employers as of January 1, 2018, from asking job applicants for “salary history information.” However, the law left several questions unanswered. AB 2282 attempted to clarify the situation, making clear that an “applicant” is an individual who seeks employment and not a current employee and defining “pay scale” as a salary or hourly wage range that does not include bonuses or equity ranges. Employers may also ask about an applicant’s salary expectations without running afoul of the Fair Pay Act.

Gov. Brown elected to veto several of the bills sent to his desk from the legislature.

  • Assembly Bill 3080. This measure would have prohibited an employer from requiring any applicant for employment or any employee to waive any right, forum, or procedure for a violation of any provision of FEHA or other specific statutes governing employment. Any agreement entered into, modified or extended on or after January 1, 2019, would also have been forbidden from requiring, as a condition of employment, that a job applicant, employee or independent contractor not disclose instances of sexual harassment the individual suffered, witnessed or discovered in the workplace.
  • Assembly Bill 1867. Employers with 50 or more workers would have been required to maintain records of sexual harassment complaints for at least five years after the last day of employment of either the complainant or the alleged harasser named in the complaint, whichever was later, under the bill.
  • Assembly Bill 1870. Had it been enacted, this bill would have amended FEHA to extend a complainant’s time to file an administrative charge with the Department of Fair Employment and Housing from one year to three years for complaints alleging employment discrimination, including sexual harassment.

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